Acct 510 final Ch. 13

cost assignment

The process of allocating an amount of cost to a cost object.

cost accumulation

The process of collecting and recording transaction data through the accounting system.

cost management

The process of using cost information to assess and manage the activities of the organization.

predetermined overhead application rate

The rate per unit of activity (for example, direct labor hour) used to apply manufacturing overhead to work in process.

overhead application rate

The rate used to allocate overhead to specific production runs. See predetermined overhead application rate.

value chain

The sequence of functions (R&D, design, production, marketing, distribution, and customer service) and related activities that, over the life of a product or service, adds value for the customer.

activity-based management (ABM)

Use of activity-based costing information by managers to support the decision-making process.

direct cost

A cost directly related to a product or activity; the cost would not be incurred if the product or activity were discontinued.

indirect cost

A cost that is indirectly related to the product or activity under consideration; the cost would continue to be incurred if the product or activity were discontinued.

process costing system

A costing system used to accumulate costs for a production process that is more or less continuous, frequently involving several departments.

overapplied overhead

A credit balance in the Manufacturing Overhead account that results from applied overhead in excess of actual overhead costs.

underapplied overhead

A debit balance in the Manufacturing Overhead account that results from actual overhead costs in excess of applied overhead.

absorption costing

A product costing method by which both variable and fixed manufacturing costs are included in product costs.

variable costing

A product costing method in which only variable manufacturing costs are included in product cost. Sometimes called direct costing.

direct costing

A product costing method in which only variable manufacturing costs are included in product cost. Sometimes called variable costing.

job order costing system

A product costing system used when discrete products, or "jobs," are manufactured.

cost distortion

A shift in the relative amount of manufacturing overhead costs applied to the mix of products produced that occurs because a single cost driver application rate is used instead of activity-based costing rates.

cost accounting

A subset of managerial accounting that relates to the accumulation and determination of product, process, or service costs.

statement of cost of goods manufactured

A supplementary financial statement that supports cost of goods sold, which is an element of the income statement. This statement summarizes raw material, direct labor, and manufacturing overhead costs during the period.

manufacturing overhead

All manufacturing costs except those classified as raw materials or direct labor.

cost driver

An activity that causes the incurrence of a cost.

Overhead

Another term for manufacturing overhead.

cost object

Any reference point for which cost is measured.

cost pool

Costs that have been accumulated for assignment to a cost object.

direct labor

Effort provided by workers who are directly involved in the manufacture of a product.

equivalent units of production

In a process costing system, the number of units that would have been produced if all production efforts during the period had resulted in completed products.

product costs

Inventoriable costs including raw materials, direct labor, and manufacturing overhead.

Finished Goods Inventory

Inventory account applicable to goods available for sale to customers.

Raw Materials Inventory

Inventory account applicable to materials ready for the production process.

Work in Process Inventory

Inventory account for the costs (raw material, direct labor, and manufacturing overhead) of items that are in the process of being manufactured.

period costs

Noninventoriable costs, including selling, general, and administrative expenses, that relate to an accounting period.

raw materials

The ingredients of a product.

activity-based costing (ABC)

The process of accumulating manufacturing overhead costs by production support activity (for example, machine setup) and then applying manufacturing overhead to production based on the activity required for each job or product.